The Relationship Between Education Finance Reform and Tax and Expenditure Limitations

Since the success of Serrano v. Priest in California, at least 43 states
have experienced legal challenges to their education financing formulas
and in 19 states court rulings have forced changes in these formulas. A
result of this litigation is a transfer of resources from districts with higher
property tax values to those with lower property tax values. Over
roughly the same time span, more than 30 states have imposed new restrictions
limiting tax collections, tax expenditures or both (TELs) at the
local level. There is evidence that the effect of education finance reform
depends upon whether a TEL is in place. Thus to understand fully the
impact of such litigation, one must consider whether reform makes the
passage of a TEL more likely. In this paper we use data for all states in
which referenda are possible over the 1978 – 1990 period to investigate
whether TEL referendums are more likely to pass in states where courts
have ordered education finance reform. We find that the probability of
TEL success in a statewide election is significantly higher if the state has
experienced education finance reform.